How to Invest in your Twenties
If you’re anything like most twenty-something-year-olds, saving money will be at the bottom of your to-do list right after calling your parents and going for that dental check-up.
Faced with the most freedom you’ve ever had in your life: exams and studying are behind you, you’re receiving a regular paycheck but have few financial responsibilities beyond your own needs, you’d be forgiven for letting saving slip your mind.
But if you’re reading this article, you’re probably more financially savvy than most of your peers already, so why not look into investment opportunities that are ideal for those in their twenties with a lifetime of saving ahead of them.
Putting aside a little bit of cash now, far from cramping your style and stemming your fun, will set you up for a more comfortable and secure future without having a major impact on your day to day life.
Sure, saving isn’t the coolest thing you could be doing, but for the sake of an afternoon with a financial advisor, you could quietly watch your investment grow and grow as the years pass.
Once described by Albert Einstein as the eighth wonder of the world, the magic of compound interest means that if you start investing just $300 at the age of 20, by the time you reach 60 years old you’ll be a millionaire.
Note that waiting even just ten years until you’re 30 depletes the sum you’ll up with by more than half. Act now! Begin your savings pile today.
Create a financial plan
Investment is important, yes. But be sure to consider it as part of an overall financial plan. You need to factor in paying off any student loans or credit card debts as these can easily build up in your early twenties. There’s no point putting money away into a savings account or investment if you’re still in debt.
Create a weekly budget and stick to it to avoid bad spending habits creeping in that become difficult to break when you’re older.
Split your investments
Consider your short and long term goals, and split your money between investments that will satisfy each. For example, if you want to save for a house, put your money into conservative investments like Money Market Funds.
With your long-term pot, the money you are saving for retirement, you can invest more aggressively as the time you have will allow the investment to weather the highs and lows of the stock market over the years.
Save harder with each year that passes
Experts recommend for you to begin your savings journey by investing just 1% of your income. As each birthday passes, increase that percentage investment by one. When your 30th birthday comes you’ll be saving 10% of your income without even noticing the difference.
Focus on your own financial goals
Don’t stress about what your friends or colleagues appear to be doing. If seeing them show off their flash cars and clothes on Instagram is making you feel like you’re missing out, just remember that you’ll be living a life of ease in later years when your investment matures. You are making the smart long term move.
A strong portfolio for a twenty-something investor is 70% stocks and 30% bonds, this allows for decent growth and sizeable return. Bonds are a lower risk, lower return investment, whilst stocks are riskier but offer a far higher return. This combination is proven to be the sweet spot where the risk and the return perfectly balance for maximum profit.
Rely on a fund
Choosing to invest in a fund means that all the hard work of diversifying and managing your money is handed over to a fund manager. An index fund is a great choice as it tracks a portion of the stock market. Note that you will pay an expense ratio which is essentially a management fee, so this must be deducted from your final profit.
This also allows you to circumnavigate potentially obstructive investment minimums, as your investment is pooled amongst those of many others.
A financial planner may be able to support you in making the early investment decisions that will characterise the rest of your life. Whilst it may seem like a huge expense now, the money they save you in choosing the right types of investments for your money will mean they more than pay for themselves. Another cheaper alternative is a robo-advisor. An automated service that takes your details and offers advice. This is ideal for young savers before your finances get too complicated.
Automate your investments
Automating your investments leaves you free to get on with the most important things in life – working hard and having fun.
Arrange to have your investment funds deducted from your salary each month and funnel them towards a brokerage account or a high-yield savings account.
Speak to your employer
Often employers will offer to match employee contributions into pension plans or investment plans, speak to yours to see what’s on offer.
The universally held belief is that you need to be putting aside 20% of your salary to be financially secure when you retire. Whilst this number may seem enormous to those on a graduate salary in one of the most expensive cities in the world. Don’t lose heart! Saving what you can, even just 1%, can soon stack up into a very worthwhile investment. Take the time to consider how you use your money now and you could be a millionaire in 40 years time!